GEP 11/20: FDI Spillovers in China – Connecting the Missing Link between Micro and Macro

Summary

We explore whether and how provincial economic developments affect the nature and extent of FDI spillovers. We find that provincial economic development does not systematically influence FDI spillovers, though there are positive spillovers from FDI in some provinces, on average, but not necessarily in all sectors in that province.

Abstract

Using a panel of 20,460 Chinese manufacturing firms over the period 2001-2005, we apply both parametric and non-parametric estimation techniques to examine the underlying relationship between the economic development of the host province and FDI spillovers. We find that provincial economic development does not systematically influence FDI spillovers. Moreover, there exists considerable heterogeneity in the FDI spillovers not only across the 29 provinces, municipalities and autonomous regions but also across the 10 manufacturing sectors within each of the 29 provinces, municipalities and autonomous regions. This suggests that FDI spillovers in China may be affected by a combination of both the characteristics of the sector within a province and the characteristics of the province itself.

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Authors

Natasha Agarwal and Chris Milner

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